The expected return is the amount of profit or loss an investor can anticipate receiving on an investment. An expected return is calculated by multiplying potential outcomes by the odds of them occurring and then totaling these results.

How is expected return for one security determined?

The expected return for one security is determined from a probability distribution consisting of the likely outcomes, and their associated probabilities, for the security. The expected return for a portfolio is calculated as a weighted average of the individual securities' expected returns.

How do you calculate expected return on CAPM?

CAPM formula shows the return of a security is equal to the risk-free return plus a risk premium, based on the beta of that security. In the CAPM, the return of an asset is the risk-free rate, plus the premium, multiplied by the beta of the asset.